ExxonMobil’s earnings: The real story you won’t hear in Washington
April 28, 2011 | Posted by Ken CohenBig numbers make headlines – like our announcement of $10.7 billion in earnings for the first quarter of 2011. What may not make the headlines is the context surrounding that number, so I thought I would share with you what I told reporters following the announcement:
When crude oil prices increase it means higher earnings for oil companies, and more importantly for most Americans – higher gasoline prices. Rising crude and gasoline prices have a very real impact on household budgets across the nation. Gasoline is an essential product, and price rises are felt by families and businesses alike.
Let me start by putting our earnings into context for U.S. motorists.
ExxonMobil’s earnings are from operations in more than 100 countries around the world. During the first quarter, more than three-quarters of our operating earnings came from outside of the United States.
The part of ExxonMobil’s business that refines and sells gasoline, diesel and other products in the United States represents less than 6 percent – or 6 cents on the dollar – of our earnings.
Why so little? Because we actually buy more crude oil to refine into gasoline and diesel in the U.S. than we produce ourselves. And these purchases are made on the open market at the prevailing rates.
During the first three months of this year, for every gallon of gasoline and other products we refined and sold in the United States, we earned about 7 cents. Compare that to the 40 to 60 cents per gallon that went from gasoline consumers to the government (state and federal) in gasoline taxes.
The underlying question people are asking is: Why are oil prices so high at the present time? The answer to this question is important because the price of crude oil accounts for most of the price of gasoline.
There are several factors involved in the rise in oil prices.
First, as a result of the global economy strengthening – particularly in countries like China, India and Brazil – demand for crude oil is on the rise.
Second, political instability in some oil-producing regions is contributing to uncertainty about future oil supplies. Oil markets are well-supplied today, but the issue is this: What will it cost to replace this supply if it is lost in the future? This uncertainty about tomorrow is reflected in prices today.
Finally, another factor behind higher oil prices is unique to the United States. And that’s the weak U.S. dollar. Oil and most other food and industrial commodities are invoiced in dollars. Accordingly, when the dollar goes “down” the price of primary commodities tend to go “up,” and vice versa.
The dollar is at a three-year low against other currencies and is approaching the record low which occurred in 2008, when oil prices were at historically high levels.
The dollar’s decline accelerated last week after a warning by Standard & Poor’s about the country’s $14.3 trillion debt and economic weakness compared to other countries.
So these factors all combine to drive oil prices up.
What is our government doing about it? Unfortunately, they’re reaching for the political playbook rather than seeking real solutions.
We understand that it’s simply too irresistible for many politicians in times of high oil prices and high earnings – they feel they have to demonize our industry.
Predictably last week the Administration established a task force to investigate oil and gas markets, now a time-honored tradition when prices increase.
And we’re seeing a return to the now-familiar misinformation about the oil industry’s taxes.
Over the last week as earnings season has approached, the Democratic Party leadership again talked about removing what they call $4 billion in oil industry subsidies. But what they really mean is that they want to increase our taxes by taking away long-standing deductions for our industry while leaving these same deductions in place for other sectors of the economy. The simple truth is that these are legitimate tax provisions to keep U.S. industry internationally competitive – to keep jobs from being exported to other countries.
Unfortunately, this false discussion about oil industry subsidies also reinforces another falsehood making the rounds: that ExxonMobil doesn’t pay its fair share of income taxes in the United States.
Let me state it unequivocally. Last year, our total taxes and duties to the U.S. government were $9.8 billion, which includes an income tax expense of $1.6 billion. Over the past five years, we incurred a total U.S. tax expense of almost $59 billion, which is $18 billion more than we earned in the United States during the same period.
And during the first quarter of this year, we incurred tax expenses in the United States of more than $3.1 billion on U.S. earnings of $2.6 billion.
So we have seen the predictable political positioning but no action to actually help bring down energy prices. In fact the government has chosen not to help increase supply by refusing to open up the vast energy resources in this country that are off limits to our industry.
We have seen exploration and development in the U.S. Gulf of Mexico – which accounts for 30 percent of all U.S. crude oil production – effectively banned for the past year by the Obama Administration.
In addition, legislation was enacted targeted at restricting the supply of oil from Canada – a country whose oil reserves are second only to Saudi Arabia’s.
Unfortunately, irresistible sound-bite politics rather than sound public policy is dominating the energy agenda in Washington – but there is one reason for optimism about America’s economic and energy security.
That optimism lies in America’s extraordinary natural gas endowment. This resource is providing the United States with an enormous economic advantage as a result of American ingenuity and innovation.
It’s nothing short of revolutionary that our industry has recently unlocked more than a 100 years’ worth of natural gas right here in the United States. And at some of the world’s lowest prices – last month natural gas was selling for 40 percent less in the U.S. than in Europe.
Think of the advantages this is already providing – in the form of power generation and fuel for manufacturing and other industries, not to mention the jobs and taxes natural gas production creates.
But there are concerns that political overreaction to a small number of isolated environmental issues could jeopardize this emerging industry and the benefits it provides.
Government policies did not cause the shale gas revolution in this country – but they could stop it in its tracks.
Policymakers need to look carefully at the facts and avoid a bias against natural gas and fossil fuel development in favor of far more costly energy sources that are already receiving massive subsidies.
In fact, we’ve already spent more on alternative energy subsidies than we did on the Manhattan and Apollo projects combined. And what do we have to show for it? Unreliable and uneconomic energy sources that still can’t compete – even at today’s prices.
On the other hand, natural gas is affordable, available – and doesn’t need taxpayer subsidies.
The technologies and industrial processes involved in developing shale gas are proven – the industry has successfully fracked more than a million wells over the last 60 years. There are thousands of feet of rock between the natural gas deposit where the fracking takes place and the water table.
Risk to water supplies and air quality can be and are being mitigated by using proper well design, operating with care and following industry best practices and procedures that are all subject to regulation and government oversight.
When these technologies are applied properly and the industry remains focused on operational integrity, we can protect our environment and public health and enjoy this unprecedented economic advantage.
Energy policy should enable safe and environmentally responsible development of all of America’s natural resources, which will support economic recovery and improved quality of life.
It’s time for our leaders to stop playing politics with the energy industry and to start working for solutions that will take the pressure off household budgets and enhance our energy security.
When crude oil prices increase it means higher earnings for oil companies, and more importantly for most Americans – higher gasoline prices. Rising crude and gasoline prices have a very real impact on household budgets across the nation. Gasoline is an essential product, and price rises are felt by families and businesses alike.Let me start by putting our earnings into context for U.S. motorists.
ExxonMobil’s earnings are from operations in more than 100 countries around the world. During the first quarter, more than three-quarters of our operating earnings came from outside of the United States.
The part of ExxonMobil’s business that refines and sells gasoline, diesel and other products in the United States represents less than 6 percent – or 6 cents on the dollar – of our earnings.
Why so little? Because we actually buy more crude oil to refine into gasoline and diesel in the U.S. than we produce ourselves. And these purchases are made on the open market at the prevailing rates.
During the first three months of this year, for every gallon of gasoline and other products we refined and sold in the United States, we earned about 7 cents. Compare that to the 40 to 60 cents per gallon that went from gasoline consumers to the government (state and federal) in gasoline taxes.
The underlying question people are asking is: Why are oil prices so high at the present time? The answer to this question is important because the price of crude oil accounts for most of the price of gasoline.
There are several factors involved in the rise in oil prices.
First, as a result of the global economy strengthening – particularly in countries like China, India and Brazil – demand for crude oil is on the rise.
Second, political instability in some oil-producing regions is contributing to uncertainty about future oil supplies. Oil markets are well-supplied today, but the issue is this: What will it cost to replace this supply if it is lost in the future? This uncertainty about tomorrow is reflected in prices today.
Finally, another factor behind higher oil prices is unique to the United States. And that’s the weak U.S. dollar. Oil and most other food and industrial commodities are invoiced in dollars. Accordingly, when the dollar goes “down” the price of primary commodities tend to go “up,” and vice versa.
The dollar is at a three-year low against other currencies and is approaching the record low which occurred in 2008, when oil prices were at historically high levels.
The dollar’s decline accelerated last week after a warning by Standard & Poor’s about the country’s $14.3 trillion debt and economic weakness compared to other countries.
So these factors all combine to drive oil prices up.
What is our government doing about it? Unfortunately, they’re reaching for the political playbook rather than seeking real solutions.
We understand that it’s simply too irresistible for many politicians in times of high oil prices and high earnings – they feel they have to demonize our industry.
Predictably last week the Administration established a task force to investigate oil and gas markets, now a time-honored tradition when prices increase.
And we’re seeing a return to the now-familiar misinformation about the oil industry’s taxes.
Over the last week as earnings season has approached, the Democratic Party leadership again talked about removing what they call $4 billion in oil industry subsidies. But what they really mean is that they want to increase our taxes by taking away long-standing deductions for our industry while leaving these same deductions in place for other sectors of the economy. The simple truth is that these are legitimate tax provisions to keep U.S. industry internationally competitive – to keep jobs from being exported to other countries.
Unfortunately, this false discussion about oil industry subsidies also reinforces another falsehood making the rounds: that ExxonMobil doesn’t pay its fair share of income taxes in the United States.
Let me state it unequivocally. Last year, our total taxes and duties to the U.S. government were $9.8 billion, which includes an income tax expense of $1.6 billion. Over the past five years, we incurred a total U.S. tax expense of almost $59 billion, which is $18 billion more than we earned in the United States during the same period.
And during the first quarter of this year, we incurred tax expenses in the United States of more than $3.1 billion on U.S. earnings of $2.6 billion.
So we have seen the predictable political positioning but no action to actually help bring down energy prices. In fact the government has chosen not to help increase supply by refusing to open up the vast energy resources in this country that are off limits to our industry.
We have seen exploration and development in the U.S. Gulf of Mexico – which accounts for 30 percent of all U.S. crude oil production – effectively banned for the past year by the Obama Administration.
In addition, legislation was enacted targeted at restricting the supply of oil from Canada – a country whose oil reserves are second only to Saudi Arabia’s.
Unfortunately, irresistible sound-bite politics rather than sound public policy is dominating the energy agenda in Washington – but there is one reason for optimism about America’s economic and energy security.
That optimism lies in America’s extraordinary natural gas endowment. This resource is providing the United States with an enormous economic advantage as a result of American ingenuity and innovation.
It’s nothing short of revolutionary that our industry has recently unlocked more than a 100 years’ worth of natural gas right here in the United States. And at some of the world’s lowest prices – last month natural gas was selling for 40 percent less in the U.S. than in Europe.
Think of the advantages this is already providing – in the form of power generation and fuel for manufacturing and other industries, not to mention the jobs and taxes natural gas production creates.
But there are concerns that political overreaction to a small number of isolated environmental issues could jeopardize this emerging industry and the benefits it provides.
Government policies did not cause the shale gas revolution in this country – but they could stop it in its tracks.
Policymakers need to look carefully at the facts and avoid a bias against natural gas and fossil fuel development in favor of far more costly energy sources that are already receiving massive subsidies.
In fact, we’ve already spent more on alternative energy subsidies than we did on the Manhattan and Apollo projects combined. And what do we have to show for it? Unreliable and uneconomic energy sources that still can’t compete – even at today’s prices.
On the other hand, natural gas is affordable, available – and doesn’t need taxpayer subsidies.
The technologies and industrial processes involved in developing shale gas are proven – the industry has successfully fracked more than a million wells over the last 60 years. There are thousands of feet of rock between the natural gas deposit where the fracking takes place and the water table.
Risk to water supplies and air quality can be and are being mitigated by using proper well design, operating with care and following industry best practices and procedures that are all subject to regulation and government oversight.
When these technologies are applied properly and the industry remains focused on operational integrity, we can protect our environment and public health and enjoy this unprecedented economic advantage.
Energy policy should enable safe and environmentally responsible development of all of America’s natural resources, which will support economic recovery and improved quality of life.
It’s time for our leaders to stop playing politics with the energy industry and to start working for solutions that will take the pressure off household budgets and enhance our energy security.
Mark McGwire wrote:
John Homman wrote:
Mark Kimitch wrote:
American businesses have been trading jobs for profit for decades, and recently at an alarming rate. Taxes aren’t the problem, greed is. It costs money to run a country, especially one that offers so much; it requires everyone to pitch in. If you want to go live in a country with an oppressive government, fine, be my guest. I’ll stay in America, because I enjoy freedom, and freedom isn’t free.
Kenneth Floody wrote:
mike dar wrote:
Jobs are created in new industries, profits in old industries. New industies newly employ in greater numbers than old industries.
Protection on a wholesale basis is safest in America’s most stable govt and dollar denomination. Taxes thru the Military protection of this society provides that.
Taxes are intrical to the money system current to the worlds Central Bank system.
Saying reduce taxes, even though a cyclical situation, is saying reduce the strength of the Central Bank, that collects through a number of channels, all the taxes.
This discussion started about BP taxes,, not jobs.
So it is not simple math.. nor about jobs.The reason this is lobbed against is simple math. New taxation rules are more expensive than old accomodated tax avenues.. BP will find a way around the expense. It won’t create jobs, won’t change anything. Reducing taxes won’t change anything. The enviroment for business creation only happens because a need… read more »
If anything, added costs in a business model creates change.. change that may create new jobs, here and abroad in new industies. Like the auto manufacturing sector, oil has had it’s day for white collar and blue collar job creation.
The idea that critical looks at energy industries are “recklessly criticize” is saying freedom of speech is not nesessary to having these energy industries prove up and respond. Without critical oversight, only the Bondholder, management in the companies win.
Joseph Vialonga wrote:
Were you informed just a tad more you would see the company does business overseas because it is a more favorable business environment, the same reason many American companies do business to an ever increasing degree overseas.
In their usual destructive and America bashing way the Democrats under this woefully inadequate president are raising or attempting to raises corporate income tax levels at a time when other major industrial countries are actually LOWERING their rates (France, Germany, etc)
The evil (in your eyes) “BIG OIL” pays MORE income taxes and has a lower average return on investment then any other “for profit” business in the world at a measly 8%. McDonalds after tax profit is generally about 15%.
Why don’t you liberals organize a march against McDonalds, Burger King et all instead of wasting your and everyone else’s time posting your totally uninformed tripe.
Ken Deardorff wrote:
Ted Stanfield wrote:
Don Sea wrote:
The fact that they refine as much as they do in the US, at the cost that they pay their employees, when they can get the same work in a foreign country for a lot less per hour of labor, makes me wonder just what it is that keeps them here. Especially if the awful tax burdens they must put up with. Face it, there is a reason why they remain in Houston, and it’s because they are making more as it stands, and if they could save a few dollars, they would be out of here like a rocket.
There are few, if any international corporations, no matter where they started, that have any intentions of staying someplace if they can make more/save more by relocating elsewhere.
There is no corporate loyalty to anything other than money. None.
Stephen Wright wrote:
In my academic environment I am always looking for the details to back up my continuous debate with those who recklessly criticize our energy suppliers. Thanks for your well written and thoughtful post.
Jeff Hubert wrote:
Harold Hunt wrote:
Derek Frick wrote:
He was referring to 4th Quarter of 2010 numbers on the other page and 1st Quarter numbers on this page.
Dividie US Downstream earnings by total Earnings and you come up with the numbers.
4th Quarter 2010 Downstream earnings were about 2.4%, 1st Quarter 2011 6.5%.
T Porter wrote:
Blake Winthorp wrote:
Bernard Biagini wrote:
Mary Magdalene wrote:
This report made me laugh…but I love the honest comments being made and they allow them to stay.
Fix your workplace environment’s treatment of gays and lesbians and you’ll be one step closer to ever getting a dollar of mine.
Jack Adams wrote:
I retired from Exxon after 30 yrs. in Marketing. Where can I go to obtain a list of the hundreds and hundreds of products Exxon produced that directly affect everyday life. Such as glues for furniture, carpeting, also food wraps, crayons…and the list goes on. I had a list several yrs. ago, can you help? It’s a great tool to use when I’m in discussions with people who totally have no understanding of the company or industry, just gut reactions. Thank you in advance.
Morris Whitcomb wrote:
William Meadows’ recent article (Outlook April 29) didn’t do a good job of explaining what he calls “tax subsidies,’ and wants them eliminated due to the recent profit results of “big oil.’ He did not mention the effects this would have on new drilling. There are four items under Congressional consideration.
The first is the Domestic Manufacturing tax deduction, designed to keep manufacturing in the US. It allows a 9% of income deduction (but only 7% for oil & gas) for domestic production. Of course existing wells cannot be moved overseas, but when they become marginally profitable, they would be shut down sooner without this allowance.
The second, Percentage Depletion, applies to all minerals, not just oil & gas. Integrated oil & gas companies (read “big oil’) are ineligible for this credit. It applies only to independent producers and royalty owners.
The third is the Foreign Tax Credit. It allows income taxes paid to foreign governments to be deducted from income subject to US taxes. It avoids double taxation.
The fourth is the deduction for Intangible Drilling Costs. These are non-salvageable costs of… read more »
The fallacy behind his proposal is that it assumes an otherwise uneconomic new well will be drilled, or a marginal existing well will be kept in production using the high profits from existing wells. I can assure you this is false. The decision to drill or maintain production will be made based on the expected profit from that well alone. For this reason the elimination of these credits will result in less oil & gas production, and for all but the foreign tax credit will result in increased reliance on imported oil & gas.
DLS Simpson wrote:
However, you go on to say energy prices would drop if American oil-reserves in the deep-water gulf were open for Exxon to drill and put on the market.
This doesn’t make sense to me. Why would Exxon dump more oil and gas into an over-supplied market to drive down prices (which is what you claim would occur) and cut into profits? It doesn’t sound like good business.
Furthermore, you claim that the gas price spike is due to increased demand at the same time you state the market is well-supplied. I’m not an economics professor, but this defies basic logic.
It appears to me you haven’t adequately explained the spike in oil and gas prices whatsoever.
M Raybon wrote:
Let me state it unequivocally. Last year, our total taxes and duties to the U.S. government were $9.8 billion, which includes an income tax expense of $1.6 billion. Over the past five years, we incurred a total U.S. tax expense of almost $59 billion, which is $18 billion more than we earned in the United States during the same period.
And during the first quarter of this year, we incurred tax expenses in the United States of more than $3.1 billion on U.S. earnings of $2.6 billion.
Omar Johnson wrote:
For a company that gets oil from America shore and don’t want to pay any taxes is illogical at best. You have made the most money in history period. To say you pay enough taxes is like telling my little son he can’t have any ice cream. I know what you should do, lobby against the speculators. But of course you wont, every dollar the price goes up you make billions. Nice racket you have Exxon. Who do you think pay the high prices. You got it the poor who must maintain a car to get to work or not be able to feed his family. Or do you think everyone in the United State is rich. You are a fool for even posting. I hope they pay you well.
Steve Trapp wrote:
Mary Magdalene wrote:
J Warrenton wrote:
Rick Torgerson wrote:
Don Skinner wrote:
steve x wrote:
PK Rogerson wrote:
You spend more on your foolish Ads.
John O\'Connell wrote:
mark hicar wrote: